Home Values Decline

The New York Times has an article today called Home Prices and Consumer Sentiment Slide. It is basically a synopsis of all of the various economic indicators released the past two days. The first thing the article discusses is that home prices have fallen on the average of 10.7% nationally year-over-year this past January. Consumer confidence has also fallen from 76.4 in February down to a dismal 64.5. Between the lower value of houses mean the decline of money able to be taken out in one's HELOC - since it is an 'equity line of credit' less equity means less spending. As these rates lower we will be hearing about more and more lines of equity getting shut down. See yesterday's story Bye Bye HELOC people are getting notices about their lines getting shut down everyday.

The interesting part of this article is the repeating of the National Association of Realtors (NAR) spin on the existing home sales levels for February. The slight up-tick of 2.9% comparing February's numbers to January's, portraying that the market has bottomed. There was a slight up-tick, these numbers are traditionally reported as year-over-year not month-to-month. The year-over-year numbers were down by 23.8%. Here is part of the post from Seeking Alpha that explains the problem with this type of spin much better than I could -

"Changes from January to February are measuring seasonal differences, not actual improvements in house sales." Can you imagine what it would be like if we reported retail sales from December to January this way? Headlines would misleadingly state: "Retail sales plummet 65%!" That is why with highly seasonal data series, the preferred methodology is to report year-over-year data -- not month-to-month variations.

As Seeking Alpha notes this spin could have negative affects if sellers are convinced the bottom has turned and refuse to drop prices, which in turn would lower the number of sales. This could easily have negative consequences that out-way a the positive. Especially when the positive is just an illusion.